Pensions - Articles - Deflation, good news for pensioners says JLT's Chief Actuary

 "Deflation is good news for pensioners but might be bad news for their schemes. Although the headline rate of deflation is small, at 0.1%, food prices have fallen by around 3% and that will particularly benefit pensioners, who typically spend a higher proportion of their income on such essentials.

 “The schemes these pensioners are in may not be so lucky, however. Very few - if any - schemes will be able, or willing, to cut back pensions that are already being paid so these pensions will increase in real terms if deflation persists. That will increase the overall liabilities for the vast majority of schemes, even if they have a strategy of matching investments.

 “There is no need for schemes to panic just yet. The fall in the Consumer Prices Index (CPI) this month was only small and could easily just be a blip. Most schemes base their annual increase in pension payments on the September inflation figures, so there are several months for inflation to return before those schemes would be affected. Equally many schemes still use the higher Retail Prices Index (RPI) to calculate their increases, so again these schemes would not be affected. Even schemes that use CPI for revaluing deferred pensions can take comfort from the fact that it's acceptable to offset any years of deflation against years of positive inflation when revaluing over the whole period of deferment, so very few deferred members will get a boost in real terms that the scheme would have to pay for."